Know Your Business Needs before Evaluating ERP Systems

By William M. Sadecky Jr., CPA

April 17, 2008

In the life of a CFO or controller, shorter reporting deadlines are a fact of life. For some, the accomplishment of meeting tighter deadlines is possible due to the use of integrated software packages, commonly known as Enterprise Resource Planning (ERP) systems. A typical ERP system will consist of “modules,” or separate software, designed for specific parts of the business. The modules independently cover different business needs, while working together to feed the general ledger and financial statements.

The decision to change or install an ERP system can be overwhelming. A tremendous opportunity exists to redefine processes and procedures, to more effectively manage your business. Before selecting any ERP system, fully understanding your business needs is critical. At a macro level, determining the future direction of the business should be the primary consideration in the evaluation process. Consider all aspects, including business growth, acquisitions or divestitures, domestic and global implications, administrative functions, and the ramifications of interfacing information.

While some companies may look to completely overhaul an entire system, others will want to install selected modules in the interest of cost savings and a quicker start-up time. Opting for this partial installation inherently disconnects the software from its integrated software counterparts, requiring information from other nonintegrated systems to be interfaced or manually fed into the system. Your information technology team may need to develop programs to bridge the information from one system to another. Consideration also should be given to information that is unique to the management of the business. Companies often track or develop metrics that are beyond traditional financial data that they believe provide information critical to effectively managing certain areas of the business.  Understand the existence, origin, and extraction of this information. You do not want access inadvertently terminated as a result of a new system. ERP systems are delivered with standard features, but it is possible to have informational needs that exceed the delivered version of the standard software. Identifying and explaining these needs from the beginning will help determine whether “work-around” solutions exist, and if the package fits the overall needs of the business.

Once an internal assessment is complete, the process of matching the business requirements to the functionality of the ERP system begins.  Attend the provider’s product demonstration to assess the system’s functionality.  If the interest remains high, ask the provider to set up a second demonstration, using information you provide. This process can help identify or close any gaps, and will help you visualize how the actual data would look in your organization.  This is also a good time to assess the reporting functionality of the software. Often overlooked, packages vary in this area. Some allow for queries and ad hoc reporting, and others recommend additional report writing software. Having current system reports on hand will help you identify the ease or complexity of creating similar reports. Opportunities may also exist to streamline current reporting processes by combining information and reducing the number of reports.

Typically, the provider will agree to arrange a meeting with one of its current clients who is of similar size and is using the ERP system. Questions answered during these meetings can be very effective in determining whether the functionality fits your business needs.

The evaluation process can be filled with challenges and opportunities. While some unexpected issues are bound to arise, the level of due diligence performed during the evaluation process can serve to mitigate these unanticipated surprises.